Dial One Mid-South v. Campbell's Plumbing

• Decision Date: 18 October 2001
• Docket Number: MID-SOUT,No. 00-30537,INC,00-30537
• Citation: 269 F.3d 523
• Parties: (5th Cir. 2001) DIAL ONE OF THE; Help Service Company, Inc., Doing Business as Dial One Help Service Company; and Campbell's Plumbing and Heating, Inc., Doing Business as Dial One Campbell's Plumbing and Heating, Plaintiffs-Appellees-Cross Appellants, v. BELLSOUTH TELECOMMUNICATIONS, INC.; BellSouth Advertising & Publishing Corporation; and L.M. Berry and Company, Defendants-Appellants-Cross-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 523

269 F.3d 523 (5th Cir. 2001)

DIAL ONE OF THE MID-SOUTH, INC.; Help Service Company, Inc., Doing Business as Dial One Help Service Company; and Campbell's Plumbing and Heating, Inc., Doing Business as Dial One Campbell's Plumbing and Heating, Plaintiffs-Appellees-Cross Appellants, v. BELLSOUTH TELECOMMUNICATIONS, INC.; BellSouth Advertising & Publishing Corporation; and L.M. Berry and Company, Defendants-Appellants-Cross-Appellees.

No. 00-30537

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

October 18, 2001

[Copyrighted Material Omitted] Appeals from the United States District Court for the Eastern District of Louisiana

Before Jolly, Smith, and Wiener,Circuit Judges.

Jerry E. Smith, Circuit Judge:

In this case brought under the Lanham Act for infringement of the Dial One trademark in New Orleans, judgment was for plaintiffs with an award of actual damages. Defendants challenge the standard used in applying the innocent infringer defense and the award of damages. Plaintiffs cross appeal the decision to exclude evidence of loss of goodwill to the Dial One mark. We find no reversible error and affirm.

I.

Dial One of the Mid-South, Inc. ("Dial One"), is the franchise holder, and Help Service Company, Inc. ("Help"), and Campbell's Plumbing and Heating, Inc. ("Campbell's"), are franchisees. U.A. Durr was once a Dial One franchisee but lost his franchise in January 1998 when Dial One terminated the relationship. Defendants BellSouth Telecommunications, Inc., BellSouth Advertising & Publishing Corporation, and L.M. Berry and Company are responsible for some part of the production and publication of the Yellow Pages and White Pages for southeastern Louisiana. In the May Yellow and October White pages for 1998, Durr was listed as a Dial One franchisee in the alphabetical section under Dial One, when in fact he had lost his franchise.

Dial One, Help, and Campbell's sued for damages, treble damages, and fees. The district court awarded the following damages: Dial One: $10,000 in lost franchise fees; Campbell's: $45,000 in lost profits; and Help: $100,000 in lost profits. Defendants appeal, challenging the construction of the innocent owner defense and the propriety of the damage awards and the sufficiency of the evidence supporting them. Plaintiffs cross appeal the refusal to consider goodwill damages.

II.

Defendants' first issue is the proper standard in applying the innocent infringer defense in § 1114(2) of the Lanham Act, which limits persons bringing actions under §§ 1114(1) and 1125(a) to injunctive relief if the defendant is an "innocent infringer." See 15 U.S.C. § 1114(2). Specifically, defendants contend the district court erred in refusing to apply an actual-malice standard to defendants' conduct to determine their status as innocent infringers. Instead, the court used a standard of objective reasonableness, under which a defendant is an innocent infringer only if, regardless of state of mind, its conduct is reasonable. The court then rejected defendants' innocent infringer defense finding not objectively reasonable the conduct of failing to remove the incorrect listing.

Statutory interpretation is a process we review de novo. See Kemp v. G.D. Searl & Co., 103 F.3d 405, 407 (5th Cir. 1997). Our starting point in divining the meaning of a statute is the intent of Congress. See Castillo v. Cameron County, 238 F.3d 339 (5th Cir. 2001). The best evidence of this intent is the language of the statute. See Negonsott v. Samuels, 507 U.S. 99, 104 (1993).

On its face, "innocent infringer" suggests a party who is without blame, but also may connote one who is without knowledge of a wrong or who has no improper motive. The latter interpretation suggests an unremarkable legal scheme whereunder any "infringer" will be held accountable, but an "innocent infringer" will not be subject to as stiff a penalty. Our task is to determine the legal significance of the term "innocent."

On this issue of first impression in this circuit, we conclude that the proper standard for evaluating whether an infringer is innocent is objective reasonableness. First, there is no constitutional mandate to protect this type of speech under the heightened actual malice standard. Second, there is no strong evidence that, in extending the language of § 1114(2) to § 1125(a) of the Lanham Act, Congress intended anything other than correction of a previous oversight in omitting that language from § 1125(a). Third, the premise of conflicting legislative history is based on an artificial conflict between the First Amendment and private enforcement of the Lanham Act. Finally, the logic of the actual malice standard is not appropriate in this context.

Defendants urge us to read "innocent" in § 1114(2) to mean "without constitutional actual malice." They premise this argument on remarks by the co-sponsor of an amendment to the Lanham Act in 1988, expressing a desire for "innocent" to incorporate the "actual malice" standard from N.Y. Times v. Sullivan, 376 U.S. 254 (1964). See 134 Cong. Rec. 31, 851 (1988) (statement of Congressman Kastenmeier).

Defendants' reliance on a statement by a co-sponsor highlights the problems with using legislative history to determine Congressional intent. First, the legislation Congressman Kastenmeier was addressing was merely a bill to extend the innocent infringer defense from one section of the Lanham Act to another; it made no substantive change in the words "innocent infringer."¹ Second, this history expresses the intent of only a single member of Congress. The risk in giving conclusive weight to a statement of only one member of Congress is particularly acute here, where the common-sense definition of "innocent" and the requirements of constitutional actual malice are difficult to reconcile.

Finally, Congressman Kastenmeier may have had the mistaken belief that Sullivan requires the meaning of "innocent" he advanced in his remarks. He apparently was under the impression that enforcement of the Lanham Act by private parties trying to protect their trademarks may overstep constitutional limitations on the regulation of speech. See 134 Cong. Rec. 31,850 (1988).

There is no such tension, however, for commercial speech that is false does not receive First Amendment protection.² Accordingly, we decline to rely on this shard of legislative history to read a constitutional actual malice standard into § 1114(2).³

Moreover, Sullivan does not support defendants' position that the actual malice standard should apply to the speech at issue. The Supreme Court has not held whether the actual malice standard applies to commercial speech; in a suit by a product manufacturer against the author of a product review, Bose Corp. v. Consumers Union of the United States, Inc., 466 U.S. 485, 515 (1984) it declined to decide whether that standard was appropriate. The Court has held, however, that matters not of public concern are not judged under the actual malice standard. See Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749, 760 (1985).

Although the trademark at issue in this case was certainly a matter of public consumption, the improper listing of a service repair business is hardly a matter of public concern such that the improper listing should be protected. In fact, the interest of the public is probably best protected by allowing the suit to proceed without an actual malice defense, so as to promote accuracy in this type of speech. Allowing the suit under a lesser standard will in no way trigger the concerns of Sullivan that defamation law will undercut important First Amendment freedoms. Accordingly, we conclude that the district court correctly announced that the proper standard for analyzing the innocent infringer defense under the Lanham Act is objective reasonableness.

Whether defendants in fact were innocent infringers under this test is a question of fact, which we review only for clear error. See St. Martin v. Mobil Exploration & Producing, Inc., 224 F.3d 402, 405 (5th Cir. 2000). Defendants do not contest the error in printing the false listing for Durr, nor do they contest knowledge of the cessation of the Durr-Dial One franchise agreement. Defendants had notice of the change and failed to remove...